China cuts tariff on Asian feed, can India benefit?

Beijing handed the soybean market another reminder on Tuesday that China is serious about reducing dependence on US imports, but the move is weak and is likely to be brushed aside by industry participants.

On July 1, China will drop tariffs on soybeans, soymeal, soybean cake, rapeseed, and fishmeal originating from Bangladesh, India, Laos, South Korea and Sri Lanka. Tariff cuts had already been planned since March, but the topic was highlighted Tuesday by China’s Ministry of Finance just days ahead of the change.

Traders did not take this news too seriously since these countries are not huge producers or exporters relative to global trade volumes. Plus, the tariffs are low with soybeans at 3 per cent, rapeseed at 9 per cent and soymeal at 5 per cent.

The timing is symbolic, if nothing else, as China will collect a 25 per cent tariff on US soybeans starting July 6 in response to US tariffs on $200 billion of Chinese goods announced earlier this month. China is the worlds top soybean buyer and the United States is the No. 2 supplier behind Brazil.

The dropping of tariffs on feed from the select Asian countries will be inconsequential to China’s trade, at least in the near term. One on hand, the play is somewhat soft since it demonstrates how few options China has in the way of non-US soybeans at the moment.

But that might build up complacency among US market participants, something that could strengthen China's hand in the long run.

Good fit?

India is the most significant producer of the Asian countries previously listed, but it does not trade much with China. In 2017, China imported 42,000 tonnes of Indian soymeal, less than 1 per cent of its annual needs. China has not imported Indian soybeans or rapeseed since at least 2006, according to customs data.

One idea is that China could develop other soybean sources or encourage an increase in production. For example, Brazil’s exports have tripled in the last 10 years, primarily due to a surge in Chinese demand. It may not be unrealistic for China to greatly reduce or eliminate its dependence on US beans over time.

India may not be a good fit, though. India is the world’s fourth largest soybean grower, but it produces 3 per cent of the global crop. It is also the third largest rapeseed producer behind Canada and China, accounting for about 9 per cent of world output.

Like China, India is set up for the crushing of oilseeds. In recent years, India crushed about 85 per cent of its annual soybean and rapeseed crops. If trade with China were to be increased, one of the two crush industries would inevitably suffer from reduced demand.

Assuming that weather is not the hindrance, India would also need a massive boost in technology to supply China with soybeans to any substantial degree, as yields are extremely low and Indias soybean crop accounts for roughly 10 per cent of China's annual consumption.

For the 2017-18 harvest, Indian soybeans yielded 0.86 tonnes per hectare (12.8 bushels per acre). By comparison, the United States tallied 49.1 bpa and Brazil’s yield is estimated at 50.4 bpa. Canadian rapeseed out-yields its Indian counterpart by more than double.

COMMENT NOW